Judge: BP Has No Coverage Under Transocean’s Insurance Policies

By Jeff Jeffrey, A.M. Best Company, Inc.

A federal judge in Louisiana has determined that BP plc. is ineligible for coverage under policies purchased by Transocean Ltd. to help cover the cost of last year’s historic oil spill in the Gulf of Mexico.

BP had filed a motion in the U.S. District Court for the Eastern District of Louisiana seeking access to more than $750 million in coverage under policies issued to Transocean by Ranger Insurance Ltd. and other excess insurers, arguing that BP should be considered an “additional insured.” The policies include the Ranger policy with its $50 million of general liability coverage and the excess policies providing an additional $700 million of general liability coverage, according to court documents.

Judge Carl Barbier of New Orleans determined BP was ineligible for that coverage because it had assumed responsibility for oil pollution risks and Transocean had not. Barbier wrote in his decision, “Because Transocean did not assume the oil pollution risks pertaining to the Deepwater Horizon Incident — BP did — Transocean was not required to name BP as an additional insured as to those risks. Because there is no insurance obligation as to those risks, BP is not an ‘insured’ (or ‘additional insured’) for those risks. Therefore, BP is not entitled to the declarations of coverage it seeks.”

BP also lost a second procedural ruling recently when Barbier ruled Alabama and Louisiana should be allowed to seek punitive damages against the company and others for damages related to the spill. Barbier had already issued a ruling that determined thousands of coastal residents and businesses would be allowed to seek punitive damages against BP.

At the time, those rulings were viewed as demonstrating there is a widening base of uninsured exposure for maritime employers. Protection & indemnity and maritime employer liability policies typically exclude punitive damage-related claims, according to Pascal Ray, senior vice president of AmWins Brokerage of Texas (Best’s News Service, Sept. 6, 2011).

Efforts to reach BP, Ranger and Transocean for comment were unsuccessful.